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TVA customers preparing for rate hike in early October

Entergy Mississippi announced earlier in the summer that ratepayers’ bills would increase an average of 28% because of the rising cost of natural gas, which makes up 60% of the company’s fuel mixture used to manufacture electricity.

Now the price of coal is forcing the Tennessee Valley Authority (TVA), which supplies power to homes and businesses in North Mississippi, to do the same.

Tom Kilgore, CEO, TVA, announced August 6 that his utility company’s rates will see an increase, although the exact percentage will be determined when it goes into effect in October. Like Entergy, TVA files its fuel cost adjustment with the Mississippi Public Service Commission (PSC) quarterly. PSC commissioners have are in at halftime of a round of hearings into Entergy’s rate increase.

Kilgore pointed to the rising cost of fuels that are commonly used to make electricity as the reason for the increase, price costs that are primarily driven by global supply and demand fluctuations. On top of that, the drought that has hit the Southeastern United States the past several years has limited the use of hydro generation of power.

Like Entergy, TVA collects its fuel costs dollar-for-dollar through ratepayers’ utility bills.

“We’re facing the same pressures that other utility companies are facing,” said TVA spokesman John Molton. “Coal prices have gone way up the past year.”

Since January, the price of composite coal that is a large portion of TVA’s fuel mixture has risen 128%. Kilgore attributed that to a variety of factors – the flooding in the Midwest that slowed delivery, the fuel surcharged levied by truck, barge and rail carriers, the devaluation of the American dollar and the surge in demand in Asian markets.

In 2007, Kilgore said, China added the equivalent of six TVA coal-fires systems, or the equivalent of one coal-fired plant every 10 days. The same principle applies to natural gas, which has grown in demand by 55% since 2000 with the addition of more than 166,000 megawatts gas-fired generation facilities. Prices for June and July were 63% higher then they were the same two months last year.

On top that, TVA’s hydro generation is down 50% in fiscal year 2008, meaning hydro-generators like the one at Pickwick Dam are producing markedly less energy, which means the difference has to be made up using coal and natural gas.

To offset those factors, Kilgore said TVA plans to implement a number of measures, including securing long-term coal and purchased power contracts, hedging a portion of expected gas needs for 2009 and increased storage, the amount of which TVA has doubled this year.

Some of TVA’s larger customers — such as manufacturers and industries — have contracts in place that set the price of electricity. “But as those contracts are up, we’re faced with open-market prices,” Molton said.

TVA’s market covers nine states.

The Mississippi portion of TVA’s coverage area lies in the Northeast part of the state.

One organization that attempts to lure industry to the area is the Tishomingo County Development Foundation (TCDF).

“Even with the increase, (TVA’s rates) will still be among the lowest in the nation,” said Gary Matthews of the TCDF. “We’re seeing the full effect of rising prices come to bear. But at the same time, there’s a record interest level in energy efficiency and that’s a good thing.”

Contact MBJ staff writer Clay Chandler at clay.chandler@ msbusiness.com .

About Clay Chandler

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